smallbiztaxlady – Page 2 – Your #1 source for tax reduction strategies.

Business Taxes, Family Taxes, General Information, General Tax Topics, retirement planning, Self Employed, Small Business, Tax Planning, Uncategorized

Backdoor Roth IRA Opportunities Still Available After TCJA

May 15, 2019May 15, 2019 Howard Tax Prep LLC

Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.

As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.

But if you earn too much, you’re completely barred from contributing to a Roth IRA unless you can use the backdoor Roth technique, which involves making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.
The backdoor Roth strategy has been around for a good nine years, and it has experienced no trouble that we are aware of, so we think it’s a good strategy. We also like the recent notations in the legislative history and the comments from the IRS spokesperson that show approval of the strategy.

Keep in mind that with some planning, you can avoid any taxes on the rollover. For example, if you have an existing traditional IRA, you can move those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no taxes.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

Business Taxes, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Deductions, Tax Reduction, Uncategorized

Deduct Your Costs of Sponsoring Sports Teams

May 15, 2019May 15, 2019 Howard Tax Prep LLC

In our south loop Chicago tax preparation office, when we prepare small business tax returns, we are often asked if a company can deduct the costs of sponsoring a sports team. Have you wondered what it takes to deduct the costs of sponsoring a sports team? What if you play on the team? Could you pay for the team travel expenses?

Revenue Ruling 70-393 states that the monies spent to outfit and support a sports team are similar to monies spent on other methods of advertising; accordingly, you may deduct them as business expenses for federal income tax purposes.

In the Strong case, Strong Construction Co. Inc. advertised its business primarily through either word of mouth or athletic sponsorships. As part of the athletic sponsorships, the corporation paid for the uniforms, logo design, hats, T-shirts, sweatpants, coats, bags, and pants for all players on its sponsored teams (broomball, softball, wrestling, etc.). The court ruled that the expenses were ordinary and necessary business expenses and that Strong could deduct them as advertising or promotion.

In the Bower case, James Bower sponsored the Lafayette Bower Housing Hustlers basketball team, and he was both an assistant coach and a player. As the Hustlers’ sponsor, Bower paid for the team’s travel, lodging, food, promotions, AAU fees, tournament fees, gym rental, and uniforms. The court noted that Bower’s sponsorship increased his commodity brokerage commissions and generated additional clients; accordingly, the court ruled that Bower’s sponsorship expenses were deductible business expenses.

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

Business Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Reduction, Uncategorized

What is the De Minimis safe harbor $2,500 Expensing ($5,000 with AFS)?

April 25, 2019 Howard Tax Prep LLC

It’s a new year, and in preparation for the Chicago small business tax preparation season, you can elect the de minimis safe harbor to expense assets costing $2,500 or less ($5,000 with audited financial statements or something similar).

The term “safe harbor” means that the IRS will accept your expensing of the qualified assets if you properly abided by the rules of the safe harbor.

Here are four benefits of this safe harbor:

Safe harbor expensing is superior to Section 179 expensing because you don’t have the recapture period that can complicate your taxes.
Safe harbor expensing takes depreciation out of the equation.
Safe harbor expensing simplifies your tax and business records because you don’t have the assets cluttering your books.
The safe harbor does not reduce your overall ceiling on Section 179 expensing.

Here’s how the safe harbor works. Say you are a small business that elects the $2,500 ceiling for safe harbor expensing and you buy two desks costing $2,100 each. On the invoice, you see the quantity “two” and the total cost of $4,200, plus sales tax of $378 and a $200 delivery and setup charge, for a total of $4,778.

Before this safe harbor, you would have capitalized each desk at $2,389 ($4,778 ÷ 2) and then either Section 179 expensed or depreciated it. You would have kept the desks in your depreciation schedules until you disposed of them.

Now, with the safe harbor, you simply expense the desks as office supplies. This makes your tax life much easier.

To benefit from the safe harbor, you and I do a two-step process. It works like this:

Step 1. For safe harbor protection, you must have in place an accounting policy—at the beginning of the tax year—that requires expensing of an amount of your choosing, up to the $2,500 or $5,000 limit. We can help you with this.

Step 2. When we prepare your tax return, Howard Tax Prep LLC make the election on your tax return for you to use safe harbor expensing. This requires that I attach the election statement to your federal tax return and file that tax return by the due date (including extensions).

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

Business Taxes, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Reduction, Uncategorized

Now that you’ve filed, do you need to tell your employer to withhold more or less income to pay your 2019 taxes?

April 19, 2019April 19, 2019 Howard Tax Prep LLC

Reprinted with changes, edits, & permission by the IRS.

Was your refund lower than expected, or did you have an unexpected tax bill when you filed this year? In our south loop Chicago tax preparation office, we saw a slight decrease in income tax refunds for personal 1040 taxes. On the other hand, many of our Chicago business tax preparation clients saw a decrease in their taxes dues thanks to the Tax Cut and Jobs Act. If you are concerned about your tax bill for the 2019 tax year, there are steps that you can take steps to make sure your federal income tax withholding is on the right track for this year.
Checking your withholding at the beginning of the year helps ensure you don’t have too little or too much withheld from your paychecks throughout the year. This is especially
important if you changed your withholding in 2018. A mid-year withholding change in 2018 can have a different full-year impact in 2019. You should also check your withholding any time your personal or financial information changes. Use the Withholding Calculator to help you decide whether you need to change your
withholding.

Federal taxes operate on a pay-as-you-go basis. This means that you need to pay most of your tax during the year, as you earn the income. Paying too much tax throughout the year will result in a refund while not paying enough can lead to a tax bill, penalties and interest when you file. One way to avoid owing a balance is to correctly calculate and adjust how much tax you should have withheld from your wages. Use the Withholding Calculator to help you decide whether you need to change your withholding.

Another option is to consider making quarterly estimated tax payments. Those who
don’t pay taxes through withholding, or don’t pay enough tax that way, may still use the Withholding Calculator to determine if they have to pay estimated tax quarterly during the year to the IRS. Those who are self-employed generally pay tax this way. See Form
1040-ES, Estimated Taxes for Individuals, for details. Visit IRS.gov/payasyougo to learn more about withholding and to determine if you should be making estimated tax payments. You are in the driver’s seat. Check your withholding today.

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

Family Taxes, General Information, General Tax Topics, Tax Deductions, Uncategorized

If You Hear This Advice on How to Cut Your Taxes, Stay Away

March 18, 2019 Howard Tax Prep LLC

When it comes to tax advice, be careful whom you trust. In our south loop of Chicago tax preparation office, we hear a number of tax tips for small business owners that aren’t based in tax law.

There is some remarkably bad and wrong and hazardous-to-your-health information out there that—despite being repeatedly debunked—just will not go away. Some of those ideas are clearly erroneous, but others can snag even very bright people.

Consider the case of Carter White Rae, a dentist in Michigan. He followed some bad advice and ended up with a bill from the government for over half a million dollars—plus a 45-month jail sentence.

Remember: You may be a logical person, but tax law is not always logical. Even if something makes sense to you—or sounds like it’s the way the law should work—it may still be completely wrong.

That’s why you have me in your corner. And that’s why you should ask me before you take an action that seems too good to be true.

The most dangerous tax strategies are the ones that lead you to believe you do not have to pay any tax at all. Known in IRS lingo as “tax protestor” arguments, they claim that by virtue of little-known quirks in the law or because of never-correctly-ratified amendments, you can somehow sidestep all U.S. tax requirements.

No matter how intricate those arguments can be, they all suffer from the same problem: The IRS and courts reject them. The government has already ruled against them, and if you use one of those arguments, the government will eventually catch up with you and demand its money. It’s a question of when, not if.

Take It from the IRS

The IRS was nice enough to compile a list of arguments that it has heard before and will categorically reject:

The filing of a tax return or the payment of federal income tax is voluntary.
Taxpayers can reduce their federal tax liability by filing a “zero return” that reports zero income and zero tax liability.
Compensation received for personal services isn’t income.
Military retirement pay isn’t income.
Only foreign-source income is taxable.
The IRS isn’t a U.S. agency.
The taxpayer isn’t a citizen and therefore isn’t subject to federal income taxes.
The taxpayer isn’t a “person” under the tax law and therefore isn’t subject to federal income taxes.
Various constitutional amendments permit the taxpayer to avoid taxes.
Form 1040’s instructions and regulations don’t have an OMB control number as required by the federal Paperwork Reduction Act.

Penalties and Prison

The IRS believes that tax protestor claims are “frivolous” and will have no mercy on you if you rely on one to avoid paying taxes. The courts tend to agree and uphold those penalties—and sometimes impose prison time as well.

Whenever you “willfully attempt to evade or defeat” your taxes, you’re looking at fines of up to $100,000 ($500,000 for corporations) and prison time of up to five years. That’s on top of having to pay the taxes due, the prosecution’s costs, and any other penalties.

How to Spot Bad Strategies

With tax law as complicated as it is, how are you supposed to tell the difference between a legitimate tax reduction strategy and a baseless idea that will get you in trouble?

The main problem with tax protestor arguments is that they claim to let you ignore the plain language of the law—simply by saying that the IRS isn’t legitimate or that you aren’t subject to the rules.

Real tax strategies work within the law, finding deductions or ways to reduce your income that the tax code or IRS have explicitly blessed—rather than going around the law or ignoring it.

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

Share this:

Share this:

Share this:

Share this:

Share this: